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Some city projects are victims of Dayton's tax bill veto

Gov. Dayton's veto this week of an end-of-session tax bill has caused some big headaches for several Minnesota cities. The bill included tax provisions linked to a dozen local development projects, which city officials are now scrambling to try to save.

The local development projects weren't the reason Dayton vetoed the omnibus tax bill; they were just part of the collateral damage.

Dayton rejected the GOP-crafted bill passed in the closing hours of the 2012 session because it paid for a package of business tax breaks by tapping into state budget reserves and adding future debt.

Oakdale City Administrator Craig Waldron said he was not at all surprised by the veto.

"We knew from the beginning that the governor had some concerns about it," said Waldron. "We were on pins and needles the whole time, knowing that there could be potential problems."

Waldron said Oakdale needed some extra time to get a development underway along Tanner's Lake after an initial plan fell apart. The city asked lawmakers to extend the duration of a tax increment financing district that recently expired.

The local projects weren't the reason for the veto; they were part of the collateral damage.

Waldron said Oakdale already has $1 million invested in the site, so it now needs a plan B.

"We'll either come back next session and try it again, or there are smaller things you can do, such as a tax abatement district and so forth, where you don't recoup as much money," Waldron said. "But we do have some smaller options, not the ultimate option, but we do have some small ones available to us."

Neighboring Woodbury was also a tax bill veto victim. That city lost its exemption from a referendum requirement, which it was counting on to help fund an expansion of the Bielenberg Sports Center.

Jason Egerstrom, communications coordinator for Woodbury, said the project will still move forward. But Egerstrom said city officials are looking for a new funding plan.

"We're going back and meeting with our financial consultant and see if we can develop new options for, what our options are to pay for it," said Egerstrom.

Most of the local projects in the bill were tax increment financing provisions. Tax Increment Financing, also known as TIF, is a method of capturing the property taxes generated from a new development and then using that revenue to help finance the project. Cities frequently use TIF to finance big development projects, but they need the state's permission.

Bloomington wanted to extend an existing tax increment financing district through 2038 to help pay for the phase-2 expansion of the Mall of America. Schane Rudlang, Bloomington's port authority administrator, said the city is now recalculating its public investment in the project.

"The mall is currently looking at a phase that includes a hotel, a medical office component with Mayo as an anchor and additional retail space," Rudlang said. "We're looking at the financing for that in the context of the financing for the larger $1.5 billion expansion plans that the mall has. It certainly puts us in a big bind."

West St. Paul wanted to add another 15 years to a TIF district to redevelop a four-block section of Robert Street. Andrea Brennan of the Dakota County Community Development Agency said several parcels have already been acquired and demolished, but she said there is still a lot of work left to do. Brennan said the tax bill veto was disappointing.

"It will likely mean that we're not able to acquire all of the parcels necessary for redevelopment, or that we'll have the resources necessary to encourage the redevelopment," she said.

Brennan said her agency will continue working with West St. Paul to find ways to save the project. But she said the existing TIF district is set to expire at the end of the year, well ahead of when state lawmakers would begin working on another tax bill.